Private Data Confirmed that Chinese Manufacturing Activity Contracted in May

According to the final release of HSBC & Markit, Chinese manufacturing activity contracted in May to 49.2 down from 50.4 in April and down from the first May estimate of the 49.4. This survey indicates the first deterioration in manufacturing activity in seven months and confirms that Chinese growth has slowed in Q2.

The statement noted:

“After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – posted at 49.2 in May, down
from 50.4 in April. This signalled the first deterioration in operating conditions in seven months, albeit at only a marginal pace.”

The Chief Economist, China & Co-Head of Asian Economic Research at HSBC also said:

“The downward revision of the final HSBC ChinaManufacturing PMI suggests a marginal weakening of manufacturing activities towards the end of May, thanks to deteriorating domestic demand conditions. With persisting external headwinds, Beijing needs to boost domestic demand to avoid a further deceleration of manufacturing output growth and its negative impact on the labour market. The new leaders should strike a delicate balance between reform and growth.”

This figure is totally opposed to the official data. The HSBC marked the lowest reading since October 2012 while official data suggest a higher expansion in May.

Analysts have in part attributed the divergence to a two-tier performance, where the large state-owned firms outpace the squeezed-out smaller institutions surveyed by the HSBC. Others continued to question the accuracy of China’s official economic data, deferring to industry indicators such as power consumption and bank lending on tap to be released next week.